On Friday, a deeply divided Supreme Court ruled that the Biden administration exceeded its authority in attempting to cancel or reduce student loans for millions of Americans, a decision that has effectively terminated the $400 billion plan. The ruling was 6-3 in favor of the conservative justices and leaves borrowers responsible for repayments that are expected to resume by the end of the summer.
Supreme Court Rejects Biden Student Loan Forgiveness Plan
President Joe Biden announced the plan last year intending to provide significant relief for student loan borrowers. However, the court concluded that such an expansive and costly program requires congressional endorsement. The majority dismissed claims that the bipartisan 2003 HEROES Act provided Biden with the necessary authority for the loan cancellation scheme.
Chief Justice John Roberts, writing for the court, agreed with the six states that sued the administration, arguing that the HEROES Act does not authorize the loan cancellation plan. The decision faced fierce dissent from the liberal justices, with Justice Elena Kagan arguing that the majority of the court "overrides the combined judgment of the Legislative and Executive Branches," thereby eliminating loan forgiveness for 43 million Americans.
Advocacy groups supporting debt cancellation have criticized the decision, calling on Biden to seek other means to fulfill his debt relief promise. Natalia Abrams, president and founder of the Student Debt Crisis Center, declared that the onus for new action falls "squarely" on Biden’s shoulders. Without the promised loan relief, the Biden administration's top Supreme Court lawyer warns of a surge in "delinquencies and defaults." This alarming prediction comes as loan payments, which have been on pause since the onset of the coronavirus pandemic three years ago, are due to resume no later than this summer.
The debt forgiveness plan, announced in August 2022, aimed to erase $10,000 in federal student loan debt for those earning less than $125,000 annually, or households earning less than $250,000. Pell Grant recipients, typically demonstrating more financial need, would receive an additional $10,000 in debt forgiveness. This made 43 million borrowers eligible for some debt forgiveness, with 20 million of those potentially seeing their debt erased entirely.
However, conservative justices questioned the fairness of the plan, suggesting it would amount to a "windfall" for the 20 million who would have seen their entire student debt disappear. Moreover, they questioned whether non-college workers would essentially be penalized for the break offered to the college educated.
The plan is among other pandemic-related initiatives blocked by the Supreme Court, including an eviction moratorium imposed by the Centers for Disease Control and Prevention and a plan to require workers at large companies to be vaccinated or undergo regular testing.
Legal challenges to Biden's loan cancellation plan followed quickly after its announcement. The court majority concluded that the Republican-led states had demonstrated they would be financially harmed if the plan took effect. The ruling has sparked disappointment and frustration among students and advocacy groups, as they rally for debt relief and seek alternatives for those burdened by student loans. The Biden administration plans to announce a new set of actions to supposedly protect student loan borrowers following the court's decision.
Student Loan Forgiveness Would Do More Harm Than Good
Student loan forgiveness is fundamentally unfair to those who made sacrifices to pay off their loans in a timely manner or avoided taking on loans altogether. These individuals may have worked through college, chosen a less expensive school, or pursued other avenues to minimize debt. Forgiving student loans retrospectively penalizes these individuals for their financial prudence and personal sacrifices.
Critics argue that student loan forgiveness is regressive, disproportionately benefiting the wealthier segment of society. This is because those with the largest debts often hold higher degrees and have a higher earning potential. On the other hand, individuals who didn't attend college, typically from lower-income backgrounds, receive no such benefits, potentially exacerbating wealth inequality.
Another argument against student loan forgiveness is moral hazard. If the government forgives student loans now, it could encourage future students to take on excessive debt in the belief that their loans will also be forgiven. This undermines the principle of individual responsibility and may incentivize reckless borrowing.
Student loan forgiveness may also have unintended economic consequences. While short-term relief might stimulate consumer spending, the long-term effects could be detrimental. The financial burden doesn't simply disappear; instead, it's shifted to taxpayers, increasing the public debt. Moreover, universities might raise tuition fees in response, knowing that future loans might also be forgiven, which would contribute to the already spiraling costs of higher education.
Finally, the issue of student debt needs to be tackled at the root rather than retroactively. High tuition fees and predatory lending practices should be addressed to prevent students from accumulating debilitating debt in the first place. Rather than forgiving student loans, critics suggest a focus on reforms such as improved financial literacy, the promotion of trade schools and community colleges, tuition regulation, and better lending practices. While there's no doubt that the student loan crisis must be addressed, critics argue that blanket loan forgiveness might not be the optimal solution. They argue for a more comprehensive and targeted approach that ensures fair treatment of all individuals, discourages irresponsible borrowing, addresses the root causes of the student debt crisis, and mitigates economic repercussions.
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